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FACTUAL ANTECEDENTS
The plaintiff in this case, Rizal Cement Company Inc., is a domestic
corporation duly-registered in accordance with the law of the Republic of the
Philippines.
The defendant in this case, R.S. Tomas Inc., is a domestic corporation duly-
registered in accordance with the law of the Republic of the Philippines. R.S. Tomas
Inc., is engaged in the supply of labor, materials, and technical supervision in wiring
and installation and supply installation. On the other hand Times Surety and
Insurance Co. Inc., is engaged in surety and insurance business and in the issuance
of performance bonds to secure the full and faithful performance of all obligations
of a party to a contract.
On December 28, 1990, Rizal Cement Company (Rizal) and R.S Tomas
Inc(Tomas), entered into a Contract for the supply of labor, materials, and technical
supervision of the following projects:
Tomas agreed to perform the above-mentioned job orders. Rizal agreed to pay
the total sum of P2,944,000.00 in consideration of the performance of the job orders.
Rizal undertook to complete the projects within one hundred twenty (120) days from
the effectively of the contract. It was agreed upon that Tomas would be liable to
Rizal for liquidated damages in the amount of P29,440.00 per day of delay in the
completion of the projects which shall be limited to 10% of the project cost. To
secure the full and faithful performance of all its obligations and responsibilities
under the contract, Tomas obtained from Times Surety & Insurance Co. Inc. (Times
Insurance) a performance bond in an amount equivalent to fifty percent (50%) of the
contract price or P1,458,618.18. Pursuant to the terms of the contract, Rizal made an
initial payment of P1,458,618.18.
On June 14, 1991, Tomas manifested its desire to complete the project as soon
as possible to prevent further losses and maintain goodwill between the companies.
Tomas requested for Rizals assistance by facilitating the acquisition of materials and
supplies needed to complete J.O. #P-90-212 and J.O. #P-90-213 by directly paying
the suppliers. It further sought that it be allowed to back out from J.O. #P-90-214
covering the rewinding and conversion of the damaged transformer.
On November 14, 1991, Rizal entered into two contracts with Geostar
Philippines, Inc. (Geostar) for the completion of the projects commenced but not
completed by Tomas.
On December 14, 1991, Tomas reiterated its desire to complete J.O. #P-90-
212 and J.O. #P-90-213 and to exclude J.O. #P-90-214, but the same was denied by
Rizal. In the same letter, Rizal pointed out that amicable settlement is impossible.
Hence, the Complaint for Sum of Money filed by Rizal against Tomas and Times
Surety & Insurance Co., Inc. praying for the payment of the following: P493,695.00
representing the amount which they owed Rizal from the downpayment and
advances made by the latter ; P2,550,945.87 representing the amount incurred in
excess of the cost of the projects as agreed upon; P294,000.00 as liquidated
damages; plus interest and attorney’s fees.
Times Insurance did not file any pleading nor appeared in court. For its part,
Tomas denied liability and claimed instead that it failed to complete the projects due
to Rizal’s fault. It explained that it relied in good faith on Rizal’s representation that
the transformer subject of the contract could still be rewound and converted but upon
dismantling the core-coil assembly, it discovered that the coils were already badly
damaged and the primary bushing broken. This discovery allegedly entailed price
adjustment. Tomas thus requested Rizal for additional time within which to complete
the project and additional amount to finance the same. Tomas also insisted that the
proximate cause of the delay is the misrepresentation of the Rizal on the extent of
the defect of the transformer.
ISSUES TO BE RESOLVED
Default or mora on the part of the debtor is the delay in the fulfillment of the
prestation by reason of a cause imputable to the former. It is the non-fulfillment of
an obligation with respect to time.1 As clearly shown in the case through the
contracts presented, there was delay on part of R.S. Tomas. The contract entered
into by the parties in the present case clearly show that the original date of
completion of the work agreed upon would be 120 days from the execution of the
contract. However, it is undisputed in that R.S. Tomas was not able to finish the
work it undertook to perform, such delay was made more apparent when R.S.
Tomas requested for extensions. R.S. Tomas’ delay in the performance of its
obligation constitutes a breach of contract which has been defined as the failure
without legal reason to comply with the terms of a contract. It is also defined as the
failure, without legal excuse, to perform any promise which forms the whole or
part of the contract.2
Under Article 2226 of the Civil Code the amount the parties stipulated to
pay in case of breach are liquidated damages. "It is attached to an obligation in
order to ensure performance and has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the obligation by
This is a situation similar to a case decided by the Supreme Court4 where the
Court declared that “Nevertheless, there was a clear breach of the third contract,
and VilRey should be held liable for the natural and probable consequences of the
breach as duly proven. In this case, Lexber was able to prove that it sustained
damages in the amount of P284,084.46, which was the amount it paid another
contractor tasked to complete the works left unfinished by VilRey. That amount
was charged against the second surety bond, which guaranteed not only the
workmanship and the quality of the materials used in the project, but also the
obligations of Vil-Rey.”
OTHER ISSUES
The Court has determined that, by ruling in favor of Rizal in the first 3
issues, it would no longer be necessary to discuss and decide the remaining issues
since the delay causing the breach of contract was proven.
Frederick V. Espinosa
Presiding Judge